Google’s IPO May Approach $2 Billion
Google Inc. said Monday that it expected its shares to sell for $108 to $135 each in its much-anticipated initial public offering, placing the top-ranked search-engine provider shoulder to shoulder with other Internet giants.
Google disclosed in a filing with the Securities and Exchange Commission that it expected to raise as much as $1.9 billion by selling 14.1 million shares in its IPO. That would give the 6-year-old company a stock market value of $29 billion to $36 billion -- larger than such well-known names as General Motors Corp. and Nike Inc.
Measured against its fellow Internet titans, analysts said Google’s valuation was reasonable. Yahoo Inc., which also helps people find things on the Internet, was worth $38 billion when the markets closed Monday; online auction giant EBay Inc. was worth nearly $49 billion.
Investors will set Google’s share price through an unusual auction process expected to culminate in an offering in mid-August, when its stock is to begin trading on Nasdaq under the ticker symbol GOOG. Google plans to launch its roadshow for investors today.
Google has become popular with Web surfers by making it easy for them to find what they are looking for -- though there are occasional hiccups. On Monday, a variant of the MyDoom Internet worm swamped four major search engine sites, making Google inaccessible to some users.
Mountain View, Calif.-based Google is enticing to potential investors because it annually sells billions of dollars in advertisements that typically run beside search-engine results on Google.com and partner sites owned by Time Warner Inc.’s America Online, EarthLink Inc. and Ask Jeeves Inc., which Monday renewed its deal to run Google ads through 2007.
Google’s torrid growth was highlighted in updated financial results disclosed in the SEC filing. It said it took in $1.35 billion during the first half of 2004, up 140% from $559.8 million during the same period last year. After giving advertising partners their cut, Google had revenue of $710 million, double the $355 million the year before.
Google’s net income reached $143 million, or 54 cents a share, compared with $58 million, or 44 cents, during the first half of 2003.
It’s no wonder that Google executives believe their company is worth almost as much as its main rival, Yahoo, analysts said. Sunnyvale, Calif.-based Yahoo posted net income of $214 million, or 15 cents a share, in the first six months of the year. Its revenue reached $1.6 billion, of which it kept $1 billion after making payments to advertising partners.
If Google stock trades at $121 -- the midpoint of its projected range -- the ratio of its price to projected 2005 earnings would be 65 compared with 60 for Yahoo, said Barry Randall, portfolio manager of U.S. Bancorp’s First American Technology Fund. That’s close enough for him to consider bidding on Google shares.
“I think the company does deserve to be considered in the same league as a Yahoo, an EBay,” he said.
Marianne Wolk, an Internet analyst with Susquehanna Financial Group, agreed. But she noted that Google generated 98% of its revenue from search-related ads, leaving it more susceptible to an industrywide slowdown than Yahoo, which also earned money from banner ads and premium services.
Wolk added that Google stock would probably be volatile for the first year as employees cashed in their stock options and minority investors such as AOL and Yahoo dumped the holdings they acquired when Google was young.
“We wouldn’t be surprised to see it stabilize at a slight discount” to Yahoo’s shares, she said.
Some analysts warned that the price of Google shares might scare many investors away.
David Menlow, president of IPOfinancial.com, checked 15 years of financial data and said Google’s triple-digit offering price would be the first he’s seen for an IPO.
“I’m not looking for this to be a successful opening,” he said.
Based on the amount of money the IPO would raise at the projected offering price, it would rank as the eighth-largest IPO by a U.S. company, according to Thomson Financial.
In addition to the 14.1 million shares Google intends to sell, company insiders and early investors are set to offer an additional 10.5 million shares to help meet demand.
Among those who plan to cash out some holdings are Google founders Larry Page and Sergey Brin, who developed the search-engine technology as Stanford University graduate students.
They each have indicated that they’ll sell about 1 million shares, heralding a payday of $108 million to $135 million. Page and Brin would still own more than $4.5 billion worth of stock, and their preferred shares have been designed to carry more voting power than the shares to be traded publicly.
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Top Google shareholderrs
After Google goes public, the value of shares held by some company insiders and early investors will be measured in the billions of dollars.
*--* Potential Shareholder Position Shares Pctg. value* Larry Page Founder 38.6 million 16.0% $5.2 billion Sergey Brin Founder 38.5 15.9 $5.2 Sequoia Capital Investor 23.9 9.9 $3.2 Kleiner Perkins Investor 21.0 8.7 $2.8 Eric Schmidt CEO 14.8 6.1 $2.0 America Online Investor 7.4 3.1 $1.0 Yahoo Investor 5.5 2.3 $0.7 Omid Kordestani Senior VP 4.8 2.0 $0.7 A. Bechtolsheim Investor 3.6 1.5 $0.5 David Cheriton Investor 3.4 1.4 $0.5
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*Based on $135 a share.
Source: Bloomberg News
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Associated Press was used in compiling this report.
